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North Baltimore resident Rosemarie Carreras found fewer options earlier this year when she and her husband looked for a Subaru Forester to replace an older car.
The colors I wanted, they did not have… nor were they getting it, she said.
Instead of red, Carreras took an available model in pearl black, which she now loves, because I knew that they didnt have a lot of cars coming in.
Ive been doing this 32 years, and Ive never seen anything like it.
Gary Hale, general sales manager at Jones Junction in Bel Air for Chrysler, Dodge and Ram, said the dealership has always aggressively stocked inventory.
When the chip thing came about, we were sitting on decent inventory, he said. If you are fortunate enough to have the car a customer is looking for, you are in a good position, because chances are nobody else has that car.
How Rising Car Prices Influence The Consumer Price Index
The Consumer Price Index is Americas key inflation metric. The astronomical prices of used and new cars in recent times have prompted us to rename the inflation metric as the Car Price Index. Nevertheless, the CPI jumped to a 13-year high in May. All the consumer good prices in the U.S. were 5% higher compared to a year earlier. But the surprising factor was that 1-3rd of that increase was solely due to the prices of used cars.
Used car prices surged to 30% over the course of the last 12 months leading up to May. This increase was just below the record one-year increase for used car prices reported in 1975. According to the sources from Edmunds, a reliable car information website, the average used car price was evaluated at $26,500 in June. This figure was an increase of 27% compared to last year. Comparatively, the average new car price hit $41,500, up 5% compared to last year. This figure was virtually the same as the average sticker price of $41,500.
Why Used Car Prices Are Rising
Car prices have risen for a variety of reasons, but they all boil down to two factors: high demand and limited supplies.
Used car prices are particularly hard hit because rental car companies, facing a near halt in demand last year, sold off about a third of their fleets to raise enough cash to survive the pandemic. That rush of sales last spring pushed used car prices slightly lower, which accounts for the large percentage increases in the 12-month comparison.
But with the current rebound in travel, rental car companies are suddenly facing a shortage of cars to rent and aren’t selling what they have even as demand for cars has soared. Millions have gotten jobs this year, and millions more who were working from home are returning to the office, feeding the need for vehicles.
And many buyers are making purchases that they planned to make last year but delayed because of uncertainty about the pandemic. New car sales to American consumers set a record by topping 7 million vehicles in the first half of the year, according to JD Power.
Record high prices for new car are also a factor pushing some buyers who would prefer new cars to look at used cars instead.
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Consider A Lease Buyout
If you’re nearing the end of your lease, you may be able to buy it out for less than what you’d pay for the car if it were sitting on a dealer’s lot right now.
This is because the residual value the vehicle’s worth at the end of the lease was established when you signed the lease several years ago.
“Those leases started before anyone knew there’d be a pandemic or a chip shortage,” Wiesenfelder of Cars.com said. “There’s a good chance that the market says the vehicle is worth more than what it was predetermined to be.”
If you consider going this route, be sure to know your state’s sales-tax rules that would apply, because that can add to the cost of the buyout, according to Cars.com.
Why Is Finding A Used Car So Hard In Metro Detroit
Derek Johnson, used car manager for Bob Maxey Ford in Detroit, said the flooding in the area has increased demand even more.
Weve got a lot of customers out here who have lost their vehicles due to the flood, Johnson said. And we’ve gotten lease customers who are turning their vehicles in and they have to order vehicles and it’s taking an extended period of time so it’s a pretty funny market right now.
Jack Sugars, pre-owned sales manager of Jack Demmer Lincoln in Dearborn, said the dealership has had five customers coming in after floods damaged their vehicles. Sugars also said he noticed the demand for used cars up in June but that it began to decline this month along with the price of used cars.
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Why Are Used Cars So Expensive
Vehicles are not only modes of transportation they are also financial investments. Theres a common saying that new cars lose a quarter of their value as soon as you drive them off the lot, and this saying is relatively accurate. Research indicates that the average car depreciates by 23.5% during the first year of ownership.
As a result, many people have been hesitant to shell out the money for a brand new car, knowing that, in all likelihood, the vehicle is going to lose a great deal of value within the first year or two of ownership. But with this line of thinking, why arent four or five-year-old cars going for half the price of this years model?
The short answer to this question is that its a combination of market forces and the Coronavirus. For further detail, lets take a look at how we got here and why used cars are still so expensive.
The Used Car Market Is Deeply Entangled With The New Car Market
The used car market is significantly larger than the new car market: About 40 million used cars were sold in 2019, compared to about 17 million new vehicles. But as one auto industry expert described it to me, they operate in tandem.
The used car market relies on inventory from elsewhere, Jessica Caldwell, executive director of insights at the automotive research site Edmunds, told Vox in October. Caldwell explains that stock in the used market comes from customers trading in old cars for new ones or turning over leased vehicles, as well as from other sources, like rental car companies casting off the tired fleet for fresh models.
But as the pandemic heated up, elements of that makeshift supply chain were impacted by more traditional disruptions in the new car supply chain: locked-down plants and skeleton crews. Currently, a global shortage of semiconductor computer chips has stalled the manufacturing process. Automakers are struggling with tens of billions of dollars in losses, according to NPR, and workers are facing temporary layoffs or hourly cuts.
While the new car market took a big hit to sales, that affected the used market supply because you dont have people trading in their cars as much or ending their auto leases on as regular a basis as before, Caldwell said.
But new and used car dealerships tend to have both different kinds of stock and different demographics of buyers.
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Who Sells Wrecked Cars
Copart Inc. is a $34 billion company that auctions off wrecked cars insurance companies have declared too costly to repair. Last week, it reported record revenue.
The average salvaged vehicle, Copart says, sold for 20.7% higher in the second quarter than it did one year before the third consecutive quarter of price increases.
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In January 2020, Eddie Lee was on the verge of selling his 2013 Dodge Charger, but he wasnt impressed with the amount CarMax offered: $9,500. It wasnt a great offer, and I was in no rush to sell it, Lee told Vox.
Then, say it with me, the pandemic happened.
In September, Lee, who lives in Howard County, Maryland, sold that same car for $11,000 on CarMax, a $1,500 increase from the offer he received in January.
When I heard used car prices were reaching levels unseen in several years, I took it to CarMax and it was a done deal, Lee said.
Used car prices surged 21 percent since last April, including a 10 percent increase in April 2021 alone, according to the Consumer Price Index. Demand for used cars has increased, and while new car sales are up compared to January 2020, the auto industry doesnt have a steady flow of new vehicles on hand. This can be traced back, in part, to another staple of pandemic consumerism: a disruption in the supply chain.
Cars never quite reached the coronavirus unavailability of toilet paper if you wanted to buy one, you were almost certainly able to. However, the secondhand car market is notably different from what it was pre-virus. Your new car may not be the model you wanted, and it certainly wont be a steal. As much as it might seem counterintuitive, low sales are helping fuel higher prices.
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New Cars Are Also More Expensive
Another contributing factor to the rise in used car prices has nothing to do with the Coronavirus. While this is refreshing in many ways, it also means that its not something that will dissipate once the pandemic ends.
Simply put, new cars are getting pricier, and as new car prices rise, so do those for used cars.
There are several reasons that new car prices are on the rise. Some of those reasons are purely structural. Modern, high-strength steel frames are lighter and safer in a collision than older structures. But this advanced technology comes at a higher cost. Cars have also gotten larger, increasing the amount of raw materials required for their production.
Other reasons are regulatory. For example, many countries around the globe are raising their vehicle emission standards and those for the factories that produce them. Manufacturers needed to invest millions or even billions of dollars in research and development to meet this challenge, which made their cars more expensive.
Finally, new cars are simply better equipped than older models. A fully-loaded modern vehicle may have surround sound, a motorized hatchback, heated seats, LCD monitors in the seats, a GPS, collision avoidance, and parking assistance. All of these systems cost money, and some of them are actually very expensive still.
Capitalize On Your Trade
While dealerships aren’t offering much in the way of discounts or negotiating as much on prices as they have before, trade-in values for trucks are “through the roof” and car trade-ins are also high, Len Stoler Automotive Group President Barry Stoler said.
“What lose on discounts they gain on the trade-in, because those values are so high,” Stoler said.
Even vehicles with higher mileage may fetch more than you think. The average amount paid for autos with mileage between 100,000 and 109,999 rose last month by 31% to $16,489 from $12,626 a year ago, according to data from Edmunds.
Trucks topped the list of the biggest year-over-year increase in average prices in that high-mileage category. For instance, the Chevy Silverado 1500 sold for an average $26,914 in June, a 49% jump from a year ago.
Even if you don’t think the car you’re trading in is worth much, it may yield more than you anticipate right now amid elevated prices. And that’s where your negotiating skills can come in handy: You may not be able to get the price down, but it’s possible you could push for more for your trade-in.
“If you have a trade-in, that sweetens the deal,” Drury of Edmunds said. “The dealers want that trade-in.”
Even cars that are nine years old have average values that are up about 30% from a year ago, Drury said.
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Why Are Used Truck Prices Soaring Right Now
The past year has been nothing short of bizarre, and when were starting to finally see the light at the end of the seemingly endless tunnel, were starting to experience the ripple effects. While the world is taking all the necessary steps to achieve normalcy, there are still other issues plaguing the country, and were seeing that translate in the cost of used cars and pick-up trucks.
Fox Auto News released a piece today highlighting the prices of used pick-ups and how theyre skyrocketing, but what gives?
Well, it shouldnt come as too much of a surprise, but the significant drop in the supply of new vehicles is caused by an ongoing semiconductor chip shortage, along with an increasing demand for cars. One such reason people are opting for a new or used ride is fear of public transportation in some cities is high.
Manheim, a used automobile wholesaler, described the average price of a pickup truck reaching $30,093 in mid-April, a far cry from its $28,121 only one month earlier.
To put things into perspective, this time last year when the industry was saturated used trucks were going for around $17,201, which was during the most strict times of the lockdowns.
Manheims chief economist is on the record saying that this is fundamentally the most extreme demand and supply imbalance you can envision happening, and we tend to agree.
Why Are Used Car Prices Going Up
According to an old adage, cars decrease in value as soon as you drive them off the forecourt. Thats especially true for new cars, many of which lose 40% of their value in the first year alone. But its also true for used cars, which generally depreciate the older they get. Or at least that was the case.
In recent weeks, weve seen something of a buzz in the used car trade, with prices going up following a quiet few months under lockdown. Despite the depreciation weve become used to, we are seeing used cars going up in value week-on-week once theyve been bought, and it hasnt gone unnoticed.
Rumours of used cars on driveways going up thousands of pounds in value are buzzing round the internet. Industry insiders have seen a sudden acceleration in used car prices from May 2021 onwards. But why exactly are used car prices going up? Are they going to keep going up? For many drivers, the main question will be can I afford to buy a car? Read on as we answer all of these questions and more.
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Why Are Used Cars So Expensive Right Now
The market for used cars is deeply intertwined with the market for new ones, says Kayla Reynolds, an analyst at Cox Automotive. The latter is going through a rough patch, and those troubles are trickling down into the used market.
A devastating shortage of microchips which are necessary for all manner of critical electrical components is slowing car production worldwide, choking the supply of new models and driving their prices skyward. High dealer markups and a lack of options are forcing more buyers to shop secondhand, chipping away at used-car inventories, Reynolds said.
To put the magnitude of this shortage into perspective, new-car inventory in the US was down 54% in June as compared to the same month in 2019, according to Cox. Dealer incentives have plummeted and transaction prices for new cars have hit all-time highs as a result.
That’s bringing a whole new set of customers to the used market, people who were prepared to spend serious money on a brand-new set of wheels and are, in turn, driving up used-car prices, says Ivan Drury, senior manager of insights at Edmunds.
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With travel surging back, they’ve resorted to snatching up used cars and they’re not giving them up.
As Auto Industry Roars Back Worker Shortages Throw Up Roadblocks
Jennings, much to her relief, wound up getting a 2013 Chrysler 200 through a nonprofit called Vehicles for Change, which takes donated cars and gives them at a discount to people who need transportation.
Vehicles for Change says it has seen an increase in need because of the pandemic, but because the program requires participants to have a job, it’s also finding that many applicants are disqualified.
Vehicle affordability is not a new issue. Even if car prices were dropping instead of rising, many low-income Americans would still struggle with transportation costs.
But this surprising spike in prices certainly isn’t helping would-be car buyers on tight budgets. And until prices return to normal, bargains will be few and far between.
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Us Inflation & Supply Chain Problems
Covids impact on supply continues.Price increases that grew out of pandemic-related shutdowns and supply chain disruptions have continued. Here are some of its effects:
Prices jumped more than expected in September.The Consumer Price Index climbed 5.4 percent in September when compared with the prior year, raising the stakes for the Fed and the White House, which are now facing a much longer period of rapid inflation than they had anticipated.
Social Security benefits will rise 5.9 percent in 2022.The increase, which is tied to the Consumer Price Index and is known as a cost of living adjustment, is the largest in 40 years.
Rents have shot higher.The increase is burdening households and fueling overall inflation. Thats bad news for the Fed, because it could make uncomfortably rapid price gains last longer.
The Port of Los Angeles will operate 24/7.The expansion of the ports hours comes as the Biden administration struggles to relieve backlogs in global supply chains, which are contributing to inflation. Walmart, UPS and FedEx will also increase operations.
Wall Street is concerned about stagflation.The toxic mix of sluggish growth and high inflation is driving fears about the possible return of an economic specter from the 1970s: stagflation.
While Wall Streets infatuation with used car pricing is new, its normal that financial events send analysts scrambling to examine data that many had probably never heard of previously.
